People’s United Financial Inc.’s
(PBCT) third quarter earnings of 8 cents per share were in line with the Zacks Consensus Estimate. While quarterly results benefited from growth in core loan portfolios and deposits, the company’s credit quality continued to deteriorate. It has reported significant increase in loan loss provisions in the quarter.

People’s United reported net income of $26.8 million or 8 cents per share for the quarter, compared to $25.3 million or 8 cents per share in the prior quarter and $46.0 million or 14 cents per share a year earlier.

Net interest income was $145.3 million, up 3% sequentially but down 9% year-over-year. Net interest margin was up 7 basis points (bps) sequentially but down 52 bps year-over-year to 3.19%. The sequential increase in the net interest margin was primarily driven by a reduction in the costs of deposits.

Non-interest income decreased 6% sequentially but was up 8% year-over-year to $80.2 million. Non-interest expense was down 6% sequentially but increased 4% year-over-year to $165.1 million.

Provision for loan losses was more than tripled from the prior-year quarter to $21.5 million and increased by $7.5 million from the prior quarter.

Net loan charge-offs jumped to $16.0 million in the quarter from $6.0 million in the prior quarter and $4.0 million in the year-ago quarter and included $6.1 million related to one non-performing shared national credit. Annualized net loan charge-offs increased 28 bps sequentially and 33 bps year-over to 0.44% of average loans. The allowance for loan losses increased $5.5 million from the prior quarter to $172.5 million at Sept. 30, 2009.

Non-performing assets also continued to increase in the quarter. These totaled $192.7 million at Sept. 30, 2009, reflecting increase of $10.7 million sequentially and $101.3 million year-over-year. Non-performing assets increased 10 bps sequentially to 1.35% of total loans.

Return on average tangible assets was 0.55% and return on average tangible stockholders’ equity was 3.0%, compared to 0.53% and 2.8%, respectively, in the prior quarter. Tangible equity ratio stood at 18.6% at Sept. 30, 2009.

With assets of $21 billion, People’s United Financial offers commercial banking, retail and small business banking, and wealth management services through a network of nearly 300 branches in Connecticut, Vermont, New Hampshire, Maine, Massachusetts and New York.

Although People’s United is currently experiencing credit quality deterioration, the company is eying strategic acquisitions for expansion. Along with this, its cost expense management initiatives bode well going forward. Hence, we currently have a Neutral recommendation on this stock.
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